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Monday, Jan. 16, 2012

British influence and the EU


LONDON — At the European crisis summit in December, David Cameron was snubbed by his European colleagues. His "veto" on accepting treaty changes believed by other members to be necessary to save European economies left Britain isolated.

All the other 26 countries were prepared to enter into negotiations leading to stronger budgetary controls in member states. Cameron exercised his veto because he said he could not obtain undertakings that the interests of financial institutions in the City of London would be adequately protected.

His veto was loudly acclaimed by Euro-skeptics in his Conservative Party, but was criticized not only by the opposition Labour Party but also by his coalition partners in the Liberal Democratic Party.

Financial institutions were lukewarm in his praise. Some suggested that his veto might have done more harm than good for the City's interests. There is a fear that the veto will provoke elements in Europe to be more active than ever in seeking measures which would undermine the city's preeminent position in Europe.

British public opinion, which according to opinion polls is predominantly Euro-skeptic, might well vote to withdraw from the EU if they were consulted in a referendum. But the general public and the Conservative Party Euro-skeptics have not thought through the consequences. Fortunately there are no grounds for holding a referendum at this stage

British trade in goods and services is greatly dependent on trade with other European Union (EU) countries. The deputy prime minister has said that 3 million British jobs are involved in British trade with Europe.

The idea that Britain could, like Norway or Switzerland, enjoy most of the benefits of membership without any of the downside is "cloud cuckoo land" thinking. Rules would be made affecting aspects of British life without Britain having a say.

British Euro-skeptics also forget that the United States, Japan and other important non-EU countries have hitherto often seen Britain as their best friend in Europe and investment in Britain, with its more liberal investment environment, as a way into Europe. If Britain decides to isolate itself from the rest of Europe, Britain is likely to lose that preferential status.

It seems clear from an analysis of the negotiations at the summit in the most reliable British economic journal (The Financial Times, Dec. 18) that the fiasco of the British veto was due to inept British handling of the issues and "a strategy of secrecy." The British made a major error in thinking that they could divide the Germans from the French. They failed to keep their allies among the small EU countries properly informed of their aims and strategy. They also upset many of their friends in the European Commission.

Cameron tried to prevent the European institutions from supporting a new inter-governmental treaty, arguing on the basis of legal advice from the commission's own legal adviser, who goes by the apt name of "Mr. Legal." However, Mr. Legal did not stand by Cameron's interpretation of what he had advised.

The final stages of the summit took place in the early hours of the morning. Everyone was tired and inevitably bad-tempered. A final communiqué, outlining what could be crucial changes to fiscal sovereignty, had to be agreed under "absurd time pressure." Inevitably the result with so many languages involved was chaotic.

At the summit, heads of government were not allowed to bring even one adviser. Cameron could therefore only communicate with his advisers by sending electronic messages. At one crucial point he apparently turned off his Blackberry.

President Nicolas Sarkozy of France seems to have been the one participant who was jubilant at the outcome. He was typically rude not only to Cameron but also to the new Danish prime minister to whom he is said to have remarked: "You're an out, a small out, and you're new. We don't want to hear from you."

Anglo-French relations were further exacerbated by a silly dispute in which both the governor of the Bank of France and George Osborne, the British chancellor of the exchequer, were involved. The dispute was over whether British or French national bonds were more at risk of a downgrade by the credit rating agencies.

As Bill Emmott, the former editor of the London Economist, has pointed out, the economic logic of Cameron's veto was "bizarre" because the "stability union" proposed by Germany for the new treaty is just what Britain has been advocating. The British government believes that budget deficits and public debt need to be reduced and held down.

While Britain looks isolated and its influence has been diminished, it is not just wishful thinking to believe that the situation may not be as bad as it seems. Britain remains a full member of the EU and is determined to uphold the single market, which remains one of the EU's greatest achievements.

Britain can and should continue to press for further deregulation and competition that would help to make European economies more competitive. Britain must do all it can to mend fences and gather allies in Europe to help in promoting such policies.

It remains to be seen whether and when the text of a new fiscal treaty can be drafted and agreed among the 17 eurozone members and some at least of the other 10 non-eurozone countries. In a number of eurozone countries it may be necessary to hold referenda that could be lost.

Sarkozy cannot be sure of re-election and Francois Hollande, his socialist opponent, if he were elected, will want to take a hard look at any new treaty. The process may take too long and the resulting treaty may not work.

It is also not clear how far austerity can be made acceptable to the populations of southern European countries. The European Union cannot yet be sure of an economic soft landing, much as this is in everyone's interest.

Hugh Cortazzi served as Britain's ambassador to Japan from 1980 to 1984.


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